Dairy outlook set to improve by early 2017 says Ornua chief

Farmers can hope to see milk prices improve in early 2017, by which time Ireland will have increased dairy sales into China, Africa, and the Middle East, says Ornua chief executive Kevin Lane.

Dairy outlook set to improve by early 2017 says Ornua chief

Ornua has unveiled record global sales of €2.5bn for 2015, plus earnings of €58.8m, up 18% on 2014.

Sales of its Kerrygold brand were at a record €740m. The wholly co-op-owned company closed 2015 with net assets of €526m, up 21% on 2014, and net debt of just €17m.

“We don’t have a crystal ball, but our best estimate is that the market will improve for suppliers during the first quarter of 2017,” said Mr Lane.

“We are not experts on global milk price volatility. And, with Ireland producing just 1% of the total market, we can’t control volatility.

“We paid our suppliers a strong product price. We suspended our levy, putting €6m back into farmers’ pockets. We’re giving members a €29m bonus, including a €15m special bonus.”

Ornua markets 60% of all Irish milk sold overseas, representing most Irish co-ops. Notable exceptions are Glanbia and Kerry Group, which market their own produce.

Ornua bought out the State’s holding in the 1970s; it traded as the Irish Dairy Board until it rebranded as Ornua in 2015 as part of its post-quota global strategy.

During 2015, product purchases from Ornua’s members rose 16% to a record 286,000mt, as Ornua opened new routes to market for Irish dairy products and the delivery of strong product price returns.

Ornua has invested €200m on new projects in the past six years. It recently acquired Ambrosia Dairy, its first manufacturing base in China.

It opened a €20m cheese manufacturing facility in Riyadh, Saudi Arabia, while it also has processing plants in the US and Spain.

Ornua will complete work on Kerrygold Park, a butter production plant in Mitchelstown, Co Cork, this year, within grounds owned by leading partner Dairygold.

“This new plant will give us the wherewithal to get Irish dairy products into new markets, new geographies,” said Mr Lane.

“It will also give us the opportunity to develop new product categories, new tub sizes, to create packages that are an exact fit for consumers in the markets we are targeting.

“We said three or four years ago that we would continue to invest in China, Africa, and the Middle East. In each of those markets, we are still a small player.

"We have plenty of firepower for further acquisitions, and we are not going to limit oursel-ves in any of those markets.”

Ornua came in for some criticism yesterday for the €9m in pay, bonuses, and contributions shared by its top nine executives over the past two years. It was the first time new accounting rules obliged the co-op to reveal details of executive pay.

“Ornua is a global business, with operations in over 110 countries around the world,” said the company.

“Attracting and retaining talented staff is of strategic importance to our business. Executive and board remuneration is benchmarked against industry peers and is agreed by the remuneration committee with support from independent professional advisers.”

ICMSA deputy president Pat McCormack has urged Ornua to use some of its 2015 profits to support the milk price for farmers this year.

“Those farmers are milking their cows every day and losing money every day,” he said.

“They’d like some sign that others in the sector have any idea of the kind of pressures they’re under as they open milk cheques this month that are, on average, half of what they were this month last year.”

Meanwhile, north-western co-op Aurivo also unveiled its 2015 results, with revenues of €420m (2014: €447m) and operating profits of €3.03m (2014: €6.73m), impacted by a tough year trading in global markets.

The co-op spent €8m supporting a strong milk price to its suppliers during 2015, a year in which the end of EU quota restrictions led to a record 12% rise in milk output. The company also invested a reported €28m in acquiring UK sports nutrition company My Goodness Ltd.

Aurivo’s consumer division performed well, with revenues up €5m to €80.3m, notably with the Connacht Gold butter brand enjoying 8% growth in market share. Its marts business saw turnover grow 6.8% to €86.5m.

However, turnover in the group’s ingredients division fell €135.8m to €99.5m. Net assets of €56.8m were unchanged, despite some losses in the value of the co-op’s shares in the Swiss-Irish group Aryzta.

Aurivo puts its solid performance in a tough year down to a focus on efficiency through the group, notably its Lean programme across all divisions. The group expects to continue supporting the milk price for suppliers this year, with hopes for an upturn by early 2017.

“We always said there’d be post-quota price volatility,” said Aurivo chief executive Aaron Forde.

“We didn’t anticipate the near disappearance of the Chinese dairy market nor the Russian ban. We believe 2016 will be another tough year, but we would be hopeful for an upturn in global markets in 2017.”

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